French and Spanish economies weaken due to eurozone stagflation

The French economy experienced a sharp slowdown in the first quarter without growth from the previous three months, while the Spanish economy also lost pace, raising the specter of stagflation in the eurozone.

The main drag on French growth has been a decline in household spending, indicating that higher food and energy prices and the effects of the war in Ukraine are taking their toll on retail spending and consumer confidence.

New price data on Friday showed French inflation rose to 5.4 percent in April from 5.1 percent the previous month, the highest level since the start of the data series in 1997.

Economists said consumer spending in France was also weighed down by Covid-19 restrictions, as the country did not lift most of its coronavirus controls until mid-March, including the requirement to show a vaccine pass to enter many indoor locations.

The disappointing growth figure has brought a recent string of French economic outperformance to a halt, despite the euro-zone’s second-largest economy benefiting from more generous pre-election fiscal stimulus and lower inflation than many of its euro-zone neighbors.

The flattening of French gross domestic product in the first quarter marks a sharp slowdown from the improved growth rate of 0.8 percent in the last three months of last year. Economists consulted by Reuters had forecast growth of 0.3 percent on average for the first quarter.

France’s National Statistical Office said on Friday that manufacturing was hit by a 1.3 percent drop in household spending, which offset a 0.2 percent increase in investment, while changes in inventories contributed 0.4 percentage points to the growth and trade contributed 0.1 percent.

Jessica Hinds, an economist at Capital Economics, said that while the decline in French consumer spending this year was “partly due to Covid restrictions at the start of the quarter, it also reflects rising prices linked to the war in Ukraine.” ”. Hinds added: “The latter is likely to continue and will put additional pressure on newly re-elected [president] Emmanuel Macron to provide more help to households.”

Spain added to the bleak news for the European economy on Friday by reporting a sharp slowdown in growth in the first quarter, following the impact of rising inflation and a spate of Covid infections.

Spain’s quarterly GDP growth of 0.3 percent was a marked slowdown from the 2.2 percent growth between the third and fourth quarters. It also fell short of the 0.5 percent growth economists forecast by Reuters.

The disappointing start to the year in France and Spain indicated that eurozone growth in the first quarter was likely to be weaker than expected. The eurozone’s quarterly GDP figures will be released on Friday and economists expect growth to remain stable at 0.3 percent on average.

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